When Bankruptcy Is An Option

I typically don’t take myself too seriously on this blog but this is probably the one time that I will. We haven’t discussed the pink elephant in the room. I like to call her Bankruptcy. Yes, I know that she’s a little fat and has bad acne, but big girls need love too!

I’m inspired by this post from a comment that I received from someone who is over 500K in debt. Yes, let’s all inhale that number together. I did just say half a million dollars. I can’t even wrap my brain around a number that huge but I realized that there are many people out there faced with astronomical numbers who have no idea how to even begin tackling it. So let’s all face this number together and see what our options are.

As you might know, not all debt is created equal. I like to use four different categories that may overlap. I call them government debt (aka The Man Owns You) and non-governmental debt; secured debt and unsecured debt. Let’s talk about each for a second. When you owe The Man money it won’t go away. This means IRS, judgments, liens, etc. We supposedly don’t have such a thing as debtor’s prison but you might want to ask Wesley Snipes about that. When you owe The Man, The Man owns you. Mind you, they might be willing to settle, but for the most part you will have to pay. Non-governmental debt just means that you owe someone, but it’s not The Man. Non-governmental debt can be either secured or unsecured.

Secured debt is stuff where they can come and repossess things if you don’t pay. We’re talking about your car or your house or the washer and dryer that you bought from Sears. They’ll take it if you don’t pay, sell it and you’ll still be responsible for the difference of what they received for your used stuff and what you owe. Got that?

Unsecured debt is the type where they can’t really come get something from you for owing them. We’re talking about credit cards, medical bills, student loans and the like. This is the easiest to get rid of in the case of a bankruptcy but there are exceptions!

Okay, now let’s talk bankruptcy. It is OKAY to file bankruptcy if there is no way in hell that you can possibly pay everything back in oh say, the next 20 years. One of the most common reasons that people file bankruptcy is for medical bills. Just have a heart attack with no insurance and see what happens when the six figure bill starts coming to your home. That happened to a colleague of mine. He makes less than 30K pay year but he still refuses to file bankruptcy. I think there is still a bit of a stigma attached to filing bankruptcy but there is no need to be ashamed. It is an option for a reason. Please use it if you have to. Don’t risk a second heart attack and dodge phone calls because you can’t pay.

Now, some debt won’t go away in a bankruptcy and recent changes have made it more difficult to discharge all debt. Things like student loans and mortgage debts won’t go away. So bankruptcy is not an option for me since something like 90% of my debt falls into those two. If you file bankruptcy, depending on how it is structured, you can still possibly keep your home. Be sure to deal with someone reputable if you do decide to file.

So yes, dancing with the ugly girl might not be something you want to do, but if she’s the only one left in the room, sometimes you just have to suck it up and ask for her hand.